Facebook filing details $5 billion IPO, revenues

By BENNY EVANGELISTA, SAN FRANCISCO CHRONICLE

Updated 3:00 pm, Wednesday, February 1, 2012

Facebook made years of speculation official today by filing plans for a $5 billion initial stock offering, setting the stage for the most hyped, head-spinning, eyebrow raising public stock market debut for any Internet company since Google in 2004.

The Menlo Park company also shared for the first time publicly its financial figures: net income of $1 billion in 2011, up from $606 million in 2010. That was on revenue of $3.7 1 billion in 2011, up from $1.97 billion in 2010.

The social network also now has 845 million members worldwide.

Analysts had been predicting the nearly 8-year-old company would seek to raise as much as $10 billion and a market valuation as high as $100 billion, which would place the company alongside far more established companies like McDonalds and Cisco Systems.

Typically, the first registration does not state the expected price per share, which will be set the night before Facebook begins trading in late April, May or even June.

But the hype surrounding Facebook is so great that even the act of registering for an IPO with the U.S. Securities and Exchange Commission, done after the stock market closed, had been one of the most anticipated moments in technology in recent years.

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"I've been following IPOs for 39 years and I can't count ten IPOs that will have the likely demand and the cache and, for the lack of a better term, the hoopla that Facebook will have," Sweet said.

In its S1 registration filed with the SEC, Facebook said it has hired investment banker Morgan Stanley as the lead underwriter, with help from JP Morgan, Goldman Sachs, Bank of America Merrill Lynch, Barclays Capital and Allen & Co.

Facebook said it will trade under the ticker symbol "FB," but the company said it still hasn't picked between the NASDAQ Global Select Market or the New York Stock Exchange.

Among the risk factors Facebook cited was competition from Twitter, Microsoft and Google's new social network, Google+, which already has about 90 million members. Facebook also cited unfavorable media coverage and hacker attacks.

"We compete broadly with Google's social-networking offerings, including Google+, and also with other, largely regional, social networks that have strong positions in particular countries," Facebook said in the filing.

PrivCo, a New York firm that tracks private companies, has pegged Facebook's worth at between $89.5 billion and $94.5 billion in implied valuation, at $38 to $40 per share.

But because of the already high investor demand for the stock, Facebook "will almost certainly pop on the open and remain above the $100 billion valuation mark at least for some time as small investors familiar with the popular brand bid up the company's stock in relatively small lots, regardless of valuation," said PrivCo President Sam Hamadeh.

"This will push the valuation up into very unreasonable territory, perhaps $125 billion to $150 billion, while the institutional IPO investors begin to sell at those nosebleed valuations," he said.

But securities attorney Andrew Stoltmann of Chicago called investing in Facebook "extremely risky."

"Although Facebook is profitable in comparison to many technology IPO's, great risks still exist," said Stoltmann, who said he has filed more than 700 lawsuits against brokerages like Morgan Stanley. "At its anticipated IPO later this year, Facebook will be three times more expensive than Google was at its IPO and nearly 40 times more expensive than the average large IPO of the last four decades."

Chief Operating Officer Sheryl Sandberg, the former Treasury Department official and Google executive who is credited with shoring up Facebook's business operations since joining the company in 2008, is expected to lead the company's road show pitching the stock to potential investors.

The IPO filing is a major milestone for the company, which Chief Executive Officer Mark Zuckerberg co-founded in his Harvard University dorm room on Feb. 4, 2004.

Facebook enters an IPO pipeline that is already filled with more than 228 companies seeking to go public so far this year. But it is by far the biggest, and is expected to be the largest since at least 2004 when Google went public.

Sweet, of IPO Boutique, cited only a handful of other stock debuts that could rival the kind of anticipation surrounding Facebook's offering, including Apple, Netscape and Genentech. Then there were the wild days of the Dot Com tech boom of the late 1990s, "when you could brought a desk and a chair public," he said.

In December, social games maker Zynga Inc. of San Francisco went public, but its price has only in the past week risen above the initial $10 price. Sweet, though, does not expect investor skepticism over Zynga to keep Facebook's stock from soaring.

"We're talking about a very profitable, high-end company that is extremely well run," Sweet said of Facebook. "Unless they mis-price it, it should do extremely well."

Rebecca Lieb, an advertising and marketing analyst with the Altimeter Group of San Mateo, noted that new data released this week from comScore Inc. said that Facebook accounted for about 28 percent of the number of times an online ad was presented for viewing in the U.S. last year, far and away the leader above both Yahoo, Microsoft and Google.

And Facebook has built an online ecosystem that disparate companies like game maker Zynga, the Washington Post newspaper and rapidly growing startup Pinterest can easily plug into and prosper.

"Part of what makes Facebook interesting is it has created what could be viewed as a Facebook economy," Lieb said.

And Facebook, which says half of its members sign on at least once a month, is expected to hit the 1 billion member mark - one-seventh of the world's population - later this year.

Google last year launched its own social network, Google+, which now has about 90 million members. A Google+ spokeswoman said that network has high engagement rates - more than 60 percent sign in daily and more than 80 percent sign in once a week.

Still, Lieb said Facebook still has a huge lead in social media advertising and in brand awareness.

Even the State of California is watching Facebook's IPO with heavy anticipation. Gov. Brown's proposed 2012-2013 state budget takes into account "The Facebook Effect" of the social network's employees having to pay capital gains taxes after selling stock.

"In the coming months, the state's revenue forecasts will need to be adjusted somewhat to account for the possibility of hundreds of millions of dollars of additional revenues related to the Facebook IPO," a budget overview said.